AMRON-SARFiN Report 2/2022

The second quarter of 2022 brought a further tightening of banks’ lending policy with regard to housing loans. This is the result of both subsequent, already 9 increases in NBP interest rates, as well as implementation of Polish Financial Supervision Authority’s recommendations regarding increased safety buffer up to 5 percentage points in creditworthiness analysis process. By the way, extending this recommendation also to loans with a fixed interest rate seems to be a nonsense.

As a result of subsequent decisions of the Monetary Policy Council, the reference rate increased from 3.50% at the end of the first quarter to 6.00% at the end of the second quarter. That resulted in an increase in the 3M WIBOR ratio, one of the components of the mortgage price and, in consequence, also the average mortgage interest rate to 9.03%.

In consequence, in the second quarter of this year not only another decrease was recorded in the volume of new lending, but also, for the first time in AMRON Centre monitoring history, the number of newly granted loans turned out to be lower than the number of loans repaid in the same period. Dramatically rising interest rates on mortgage loans induces an increasing number of borrowers to early repayments. As of June 30 this year, the number of active housing loans fell to 2 483 539. This means a decrease by 2.55% in the second quarter of 2022, i.e. by 65.021 loans in nominal terms, compared to the balance at the end of the first quarter of 2022. The total debt of Polish households due to contracted housing loans also decreased.

In the second quarter of 2022, the number of newly granted housing loans amounted to 38 398, i.e. as much as 43.70% less than in the previous year. The value of newly granted mortgage loans amounted to PLN 13.536 billion and was lower by 38.85% than in the corresponding period of the previous year.

The average value of a housing loan in total stabilized at the level of approximately PLN 350 thousand.

Increased construction activity, especially in context of decreasing number of granted loans in the first half of 2022, might seem incomprehensible. Nevertheless, there was a clear recovery in the construction sector noted in the second quarter, comparing to the results from the first quarter of a year. The number of started constructions was higher by 24.65%, while the number of construction permits grew by 19.30%. Number of completed dwellings remained practically unchanged. Development sector achieved even better results, largely due to the amendment of the so-called Developer Act entering into force at the beginning of July. New regulation imposes another additional costs on developers – obligatory contributions to the Developer Guarantee Fund.

Unfortunately, compared to the second quarter of 2021, the number of started constructions decreased by 17.88%. It is true that there were increases in case of other two indicators, but their scale is confirmed by the fact that developers are lingering and waiting for further development on the mortgage loan market. As a result we will see lower supply of new flats in the coming quarters.

Second quarter of this year brought a further reduction in the number of concluded transactions – both on the primary and secondary market – and was accompanied by a significant diversification of the dynamics of average housing prices in particular locations. Further price increases recorded in some locations resulted from an increase in share of higher-priced apartments in decreasing number of concluded transactions. However, the dynamics of price growth did not exceed the level of inflation increase recorded by the Central Statistical Office, which for the second quarter of 2022 amounted to 5.8%. This meant further declines in average home prices in real terms. The highest increases in the average nominal price were recorded in Lodz and Wroclaw – by 4.78% and 4.77% respectively. On the other hand, prices in Warsaw and Poznan fell by 1.17% and 2.01% respectively. Still, in relation to the corresponding period of 2021, price increases are double-digit. The highest increases in the average price of flats were recorded in Wroclaw (by 14.67%) and in Lodz (14.25%), while the lowest were noted in Poznan (6.24%).

It is currently difficult to state, whether we are dealing with a change in the price trend in the largest Polish cities or the recorded drops in some locations result from changing structure of the market. Expectations of a drop in prices follow a significantly reduced demand due to increase in interest rates and tightening of lending policy related to the Polish Bank Supervision recommendation for banks. At the same time, the housing boom in recent years has launched many new investment projects powering supply side of the market, especially outside the largest cities, which in the current phase of the economic cycle is not conducive to maintaining price increases. A price correction is possible to the level of prices noted 2-3 quarters ago, even to the level from mid-2021. On the other hand, a strong increase in housing construction costs, which – as the demand is weakening – may not be transferred to housing prices, effects on lower profitability of new projects for developers, which will result in suspension of new investments and a reduction in supply in the next 2-3 years. This may slow down the scale of expected price correction.

Second quarter of the year also brought a slowdown in private rent rates upward trend in the largest Polish cities. A significant number of the refugees, who came to Poland after the outbreak of the war in Ukraine, returned to their home country or moved to other EU countries, what contributed to lowering the demand pressure on rent rates for flats in the largest Polish cities. Nevertheless, increases in the average rent rates for apartments were again observed in all surveyed locations. However, these increases were much lower than in the first quarter of this year.

The highest growth in relation to the level of rent rates recorded in the previous quarter was noted in Poznan – 5.57%. The average rent rate for a flat in Warsaw in the second quarter of 2022 amounted to PLN 2.087 and was higher than in the previous quarter by 2.20% (PLN 45).

The banking sector remains between the rock and a hard place. On one hand, the Monetary Policy Council each month takes decisions to raise the NBP interest rates, what results in WIBOR ratio increase in the, which in turn translates into more and more expensive costs of mortgage loans. On the other hand, not only the government, but also the opposition parties blame banks for increases in mortgage loans monthly instalments and, without any inhibitions, reject proposals for solutions to help borrowers repay their loans.

Costs generated by so called ‘credit holidays’ for banking sector may significantly weaken the banks’ offer in terms of granting new mortgage loans. Especially, when a mortgage loan granted for housing purposes, which for decades was treated as a safe long-term financial instrument constituting the basis for building a long-term positive relationship between the bank and the customer, has become a high-risk instrument due to successive unreasonable political decisions.

We are preparing for both local and parliamentary elections, which are to be held in 2023. Initial proposals of individual political parties on solving housing problems have already appeared. Unfortunately, they are not very impressive, while the housing problems are growing.

Certainly, the Polish Banks Association will join the discussion on the future of the housing market, proposing solutions and financial instruments verified over the years, ensuring incomparably more effective protection of citizens’ housing needs in neighbouring countries.

Jacek Furga,Ph.D.
Head of AMRON Centre

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